variations on a common theme–assets outside a trust

May 9, 2016 - Posted by: admin - In category:

taxes - No Responses

A Trust can be compared to a safe, a barn or some other type of protective structure. Each of these protects and preserves only those items within.

This is a common theme about which we have written and spoken many times previously. Even so, while answering public inquiries on an internet Listserv earlier today, I was just reminded again of this issue and the very common misconceptions related to the same. If you want to shortcut this blog post and just read what I have written previously on the subject, you can click HERE or HERE.

Today’s inquiry went something like this: “My father had a trust, so can I assume that his house and other assets were owned by the trust?”  This seems like a very reasonable assumption. Again, to use the safe analogy, you would probably assume that if your parent purchased a nice safe for the purpose of protecting his or her valuables that such valuables would be found within the protection of that safe upon the passing of your parent. This just makes sense, right? Well, logical or not, the reality is that far too often people have assets outside of their trust at the time of their disability or death. How could this happen? Great question. The circumstances vary with the person, but a very common theme is that some or all of the relevant assets are put into a trust at the time the trust is established, but then with the passage of time, as existing assets are traded for new assets, such new assets are not properly put into the trust. By the way, the common phrase used to refer to making the legal connection between assets and a trust is “funding the trust”.

This common occurrence of people selling their house and moving to a new house, closing a bank account and obtaining a new bank account, new investments, new life insurance policies, etc., etc. is the very reason why you should pay careful attention to periodic maintenance for your estate plan. Like many other types of periodic maintenance, it does not need to be a lot of work or something that costs a lot of money, if it is done regularly and properly.  On the other hand, if such periodic work is neglected or avoided for many years and if in the interim there has been a death or disability, then the amount of work and the associated costs may become significant.

To summarize, if you have a trust, please remember to work with a qualified attorney to ensure that the assets your trust was established to protect and manage are actually funded into this trust, now and in the future. As you reach a point in your life where you want to sell your house, get a new house and otherwise obtain additional assets, be careful to regularly attend to keeping those new assets within the legal protection of your existing trust. Then, when the storms of life come, your assets will all be in the safety of your trust and things will happen according to your instructions and goals. On the other hand, if your assets are outside of your trust because periodic update work has not been done, such assets will be subject to probate and the potential costs and other negatives that can come along with probate.

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